- Why is Thomas Piketty’s 700-page book a bestseller?
- Who commands majority support?
- The barbarians within our gates
Posted: 22 Sep 2014 01:21 AM PDT
Thomas Piketty is a French economist whose Capital in the Twenty-First Century has swept American discourse. Four experts – Brad DeLong, Tyler Cowen, Stephanie Kelton and Emanuel Derman – take on why that is
There's been a bizarre phenomenon this year: a young, little-known French economist has written a 700-page tome about economic inequality – dense with data, historical examples from France, and a few literary references to Jane Austen.
That's not the strange part. This is: it's a bestseller.
Somehow, Capital in the Twenty-First Century by Thomas Piketty has become a conversation piece among well-read people. Its graphic red-and-ivory cover is inescapable. Early in its launch, it hit No 1 on Amazon's bestseller list and the paper version – a doorstop in punishing, heavy hardcover – sold out in major bookstores.
Piketty's main argument is this: that invested capital – in the stock market, in real estate – will grow faster than income.
The implications of that are deep: to have invested capital, you must have money already. If you rely on income, as most people do, you will likely never catch up to the wealth of people who are already rich. The 1% and the 99% enshrined by Occupy are not an anomaly of our time, Piketty's research suggests. It's a structural feature of capitalism. Piketty's work – which has been in progress for over a decade – is a natural pairing with the Occupy movement, which also questions the premises of capitalism.
You can see the appeal of such an argument, which has driven the book to become a cultural touchpoint. Seattle quoted Piketty in its minimum-wage law. The book has had so many reviews and articles that it's possible for someone to feel as if they have read it even without cracking the cover.
Which raises the question: why this book? The themes that Piketty brings up have been enshrined in discussion about progressive economists for decades. No fewer than three Nobel Prize winners – Joseph Stiglitz, Paul Krugman and Robert Solow – have all devoted much of their careers to studying inequality. On Friday, 19 September, I moderated a panel at the Washington Center for Equitable Growth that included Solow as well as economists Brad DeLong, Tyler Cowen and Russ Roberts. For 90 minutes, they hammered out the implications of Piketty's work — and the discussion ended with much more to say.
I decided to ask star economists and finance experts who have devoted their careers to issues of inequality and the American economy: why is Thomas Piketty a bestseller? Is he required reading? Their thoughtful responses are below, and they include some surprises – including one who has decided not to read Piketty at all.
Oh, and it's pronounced like this: Tome-AH PEEK-a-tee. Now, over to the experts.
Stephanie Kelton is chair of the Department of Economics at the University of Missouri-Kansas City. She is also editor-in-chief of the top-ranked blog New Economic Perspectives.
What explains the Piketty phenomenon? The book, which has sold more hardcopies than its e-book alternative, commands so much real estate that it will crowd out a few old favorites when it takes a stand on your shelf. The title, Capital in the Twenty-First Century, doesn't exactly carry the titillating allure of a bestseller like, say, Fifty Shades of Grey. It looks and sounds like what it is – a scholarly tome that sets out to investigate changing patterns of ownership in the economy's most dominant resource, capital. Who owns the world's stock of tangible and financial assets, where did they get them, and how did the distribution of ownership change through time?
While it is easy to see why a book like this would receive such intense interest from economists, who are engineered to concern themselves with questions like these, it is, perhaps, more difficult to understand how Capital became a book that would top the summer reading lists of thousands of beach-bound, working class adults. My own guess is that Capital was the right book at the right time.
The Occupy movement laid the groundwork for a great debate. What was happening to America? Were we witnessing the rise of a plutocracy or the emergence of a meritocracy? Chris Hayes and Joe Stiglitz made the case on the left, while Tyler Cowen and David Brooks provided a counter-narrative for the right. Both sides had a loyal following, but it was Piketty whose meticulous examination of the evidence, seemed to provide the impartial proof audiences were craving. The left was right. The wealthy owed their fortunes to their forefathers and the Congressman who wrote the loopholes for their tax accountants to exploit. It's a conclusion that confirmed many priors, which probably explains much of its success.
Tyler Cowen is professor of economics at George Mason University and author of the recent book Average is Over.
Thomas Piketty's Capital in the Twenty-First Century has been a hit for several reasons, most notably the quality of the work. But I'd like to focus on a neglected reason why the book has found so much support, namely it appears to strengthen the case for redistribution.
Most previous commentators focused on income inequality. Bill Gates or JK Rowling have earned more than CEOs or authors in the past, while incomes in the middle class or lower middle classes are often stagnating below what previous generations could expect. That's a labor market issue – namely that some individuals are not very much demanded by employers.
The obvious questions are then a) how can we make low-earners more productive, and also b) how can we improve education?
Perhaps most importantly, as these issues get processed by the public there is a common attitude – whether justified or not – that many of the lower earners are partially or fully responsible for their own plight. The egalitarians don't tend to win these policy debates.
In the simplest version of the Piketty model, wealth grows more quickly than does the economy as a whole and thus the picture changes. The relative losers are no longer low earners but rather anyone who is not a capitalist. Any disparity is due not to their shortcomings in labor markets but rather to their lack of a high initial endowment.
Furthermore redistribution will work like a charm, at least provided the redistribution is enough to give the poorer individuals some capital to invest.
If you are an activist who favors lots of redistribution, the Piketty story is a lot easier to tell yourself and to tell your audiences – and that is yet another reason for its popularity.
Emanuel Derman is a professor at Columbia University, where he directs the program in financial engineering. His latest book is Models.Behaving.Badly: Why Confusing Illusion with Reality Can Lead to Disasters, On Wall Street and in Life – one of Business Week's top ten books of 2011.
Economists are the new nuclear physicists, turned to by governments for advice as though they are heirs to the power of the scientists who created Hiroshima. Macroeconomists now advise central banks on monetary policy, and behavioral economists tell political parties and governments how to nudge citizens to do what politicians and economists deem to be right.
I make my living teaching finance, the branch of economics concerned with putting a value on assets such as stocks, bonds, mortgages and options.
Though I should, I can't bring myself to read Thomas Piketty.
I wish I could. I have nothing against him or his work, which seems well-intentioned and directed at improving human welfare. I am just spiritually weary of the ubiquitous cockiness of economists, though Piketty sounds as though he's less guilty of this than most of the pundits in the daily papers.
The best model in my field, finance, is the Black-Scholes model of options pricing, which, according to Steve Ross, an MIT economist himself, " … is the most successful theory not only in finance, but in all of economics." I've spent most of my professional life working on options theory, and I understand it well. More importantly, I understand its limitations in describing the behavior of complex human beings and markets via simple assumptions and mathematics. But limited though it is, finance is much more reliable than economics.
Economics is the study of how to utilize limited resources to achieve good ends. And good, of course, is in the eye of the beholder, defined by humans. But economists don't agree with each other about ends or means. They can't agree on the efficacy of money printing or austerity. They keep changing their minds every few years about conventional wisdom while at every instant appearing to be certain that they are right. My gripe with economists is not that their models don't work well – they don't, look at the role of central banks in the financial crisis – but that they seem so reluctant to acknowledge the riskiness of their advice. And yet, beware their fearsome unelected power. Anyone visiting from Mars last year and asking to be taken to our leader would undoubtedly expect to meet Bernanke.
As a result their public arguments have an incestuous yet masturbatory quality that is exhausting to follow. The only field more self-confidently but just as regularly wrong as economics is nutrition, whose recommendations to shun butter/margarine or red meat/carbohydrates regularly reverse themselves.
Natural scientists (physicists, chemists, biologists) have had frightful power, and not always used it well. But at least they can more or less agree about truth and efficacy. Economists cannot, except by using statistical regressions which are often flawed and prove little.
So I cannot currently bring myself to read over 600 pages by an economist. One day I do hope to read Piketty's book.
J Bradford DeLong
Brad DeLong was a deputy assistant secretary of the treasury from 1993-1995, and is now a professor of economics at UC Berkeley, a research associate of the NBER and a blogger for the Washington Center for Equitable Growth.
I like Thomas Piketty's Capital in the Twenty-First Century a lot. It follows Larry Summers's advice – which I have always thought wise – that the further ahead in time we want to forecast, the further back in time we should look. It deals with very big and important questions. It takes a broad moral-philosophical view, rather than a narrow technical-economist view. It combines history, quantitative estimation, social science theory, and a deep concern with societal welfare in a way that is too rare these days.
But I thought it would be a book for a narrow audience: me and a few others. I expected people who did not have the souls of accountants to start to snore at Piketty's numbers, numbers, numbers and more numbers.
What we can think about is why the soil was fertile: why was there the potential for a mass-audience viral explosion of interest in Capital in the Twenty-First Century rather than our standard set of viral propagation memes – cat videos and Buzzfeed's Twenty-Seven Things You Won't Regret When You Are Older?
I confess that I do not know. I do have a guess. My guess is that the book-buying upper-middle class of America today is greatly distressed when it looks at the world around it, specifically at two things.
The first is that our society today is largely failing its non-migrant non-college-completing majority, in that for all of our cheap electronic toys, life is no easier than it was a generation ago in spite of an enormous explosion of technology and productivity.
The second is that they now know of a plutocracy that did not use to exist and makes us very uneasy. Last generation's Michigan governor and American Motors president George Romney lived in a large-but-not-abnormal house and bossed a company that created lots of good jobs at good wages. This generation's Massachusetts governor and Bain Capital CEO Mitt Romney has seven houses worth perhaps $25m in total, and bossed a company whose core business model appears to have been exploiting legal anomalies like the fact that pension funds have little control over their money after it's invested.
And because the book-buying upper-middle class does not trust the entrenched positions of America's ideologues, they are looking for fresh thinking – which a foreigner like Piketty, whose positions are not those of any large American political faction, provides.
Now Piketty's grand argument may be wrong. It could be that in the future, capital will turn out to complement rather than substitute for labor, and the wealth accumulation of plutocrats will generate their self-euthanasia as a social class by pushing down the rate of profit.
It could turn out that growing fortunes will be a lot harder in the future than Piketty thinks it will. It could turn out that our plutocrats as a social class will decide to play the status game of spend-their-money-and-change-the-world rather than enrich great-grandchildren that they will never see.
My guess is that the grimmer elements of Piketty's forecast have only a 50-50 chance of coming true even if plutocrats achieve and maintain a lock on politics for the next three generations. But that is much more than enough to worry about the scenario he paints, and figure out how to guard against it.
Posted: 21 Sep 2014 08:19 PM PDT
From all accounts it appears that the Selangor palace has shortlisted three potential candidates for the post of the next Selangor menteri besar (MB), to bring to a close the crisis that has been raging for these several weeks past.
The question on everyone's lips is, will the crisis be finally resolved?
More importantly, are we about to witness the reordering of the fundamental construct on which our Constitution is based?
These questions are raised in the context of the fact that none of the three candidates, on the face of it, have thus far been shown to command the confidence of the majority of the members of the legislative assembly.
And this “majority command” – on high established legal authority – appears to be the only criteria for the appointment of an MB.
This is what a “constitutional monarchy” in the context of our Federal Constitution is all about.
Many on high have elaborated on the exercise of the discretion by the Sultan in appointing an MB – from the chief justice ("must appoint someone who has the command and confidence of the majority of the members of the state assembly") to former lord president, Raja Azlan Shah (the king's role "no more than giving constitutional endorsement to the decision of the party in power").
Undoubtedly, His Royal Highness has his own mechanism for ascertaining who in His judgment commands majority confidence. This should be made readily transparent to avoid the risk of an unsettling disquiet by the people. Unexplained, it may spawn constitutional complexities and possible challenges which may unduly extend, rather than resolve, the crisis.
This is especially crucial since, so far, majority support has been demonstrated through acceptable legal means for only a single named candidate from the ruling party.
Posted: 21 Sep 2014 08:18 PM PDT
“Arab civilization has collapsed. It won't recover in my lifetime.”
With his decision to use force against the violent extremists of the Islamic State, President Obama is doing more than to knowingly enter a quagmire. He is doing more than play with the fates of two half-broken countries—Iraq and Syria—whose societies were gutted long before the Americans appeared on the horizon. Obama is stepping once again—and with understandably great reluctance—into the chaos of an entire civilization that has broken down.
Arab civilization, such as we knew it, is all but gone. The Arab world today is more violent, unstable, fragmented and driven by extremism—the extremism of the rulers and those in opposition—than at any time since the collapse of the Ottoman Empire a century ago. Every hope of modern Arab history has been betrayed. The promise of political empowerment, the return of politics, the restoration of human dignity heralded by the season of Arab uprisings in their early heydays—all has given way to civil wars, ethnic, sectarian and regional divisions and the reassertion of absolutism, both in its military and atavistic forms. With the dubious exception of the antiquated monarchies and emirates of the Gulf—which for the moment are holding out against the tide of chaos—and possibly Tunisia, there is no recognizable legitimacy left in the Arab world.
Is it any surprise that, like the vermin that take over a ruined city, the heirs to this self-destroyed civilization should be the nihilistic thugs of the Islamic State? And that there is no one else who can clean up the vast mess we Arabs have made of our world but the Americans and Western countries?
No one paradigm or one theory can explain what went wrong in the Arab world in the last century. There is no obvious set of reasons for the colossal failures of all the ideologies and political movements that swept the Arab region: Arab nationalism, in its Baathist and Nasserite forms; various Islamist movements; Arab socialism; the rentier state and rapacious monopolies, leaving in their wake a string of broken societies. No one theory can explain the marginalization of Egypt, once the center of political and cultural gravity in the Arab East, and its brief and tumultuous experimentation with peaceful political change before it reverted back to military rule.
Nor is the notion of "ancient sectarian hatreds" adequate to explain the frightening reality that along a front stretching from Basra at the mouth of the Persian Gulf to Beirut on the Mediterranean there exists an almost continuous bloodletting between Sunni and Shia—the public manifestation of an epic geopolitical battle for power and control pitting Iran, the Shia powerhouse, against Saudi Arabia, the Sunni powerhouse, and their proxies.
There is no one single overarching explanation for that tapestry of horrors in Syria and Iraq, where in the last five years more than a quarter of a million people perished, where famed cities like Aleppo, Homs and Mosul were visited by the modern terror of Assad's chemical weapons and the brutal violence of the Islamic State. How could Syria tear itself apart and become—like Spain in the 1930s—the arena for Arabs and Muslims to re-fight their old civil wars? The war waged by the Syrian regime against civilians in opposition areas combined the use of Scud missiles, anti-personnel barrel bombs as well as medieval tactics against towns and neighborhoods such as siege and starvation. For the first time since the First World War, Syrians were dying of malnutrition and hunger.
Iraq's story in the last few decades is a chronicle of a death foretold. The slow death began with Saddam Hussein's fateful decision to invade Iran in September 1980. Iraqis have been living in purgatory ever since with each war giving birth to another. In the midst of this suspended chaos, the U.S. invasion in 2003 was merely a catalyst that allowed the violent chaos to resume in full force.
The polarizations in Syria and Iraq—political, sectarian and ethnic—are so deep that it is difficult to see how these once-important countries could be restored as unitary states. In Libya, Muammar al-Qaddafi's 42-year reign of terror rendered the country politically desolate and fractured its already tenuous unity. The armed factions that inherited the exhausted country have set it on the course of breaking up—again, unsurprisingly—along tribal and regional fissures. Yemen has all the ingredients of a failed state: political, sectarian, tribal, north-south divisions, against the background of economic deterioration and a depleted water table that could turn it into the first country in the world to run out of drinking water.
Bahrain is maintaining a brittle status quo by the force of arms of its larger neighbors, mainly Saudi Arabia. Lebanon, dominated by Hezbollah, arguably the most powerful non-state actor in the world—before the rise of the Islamic State—could be dragged fully to the maelstrom of Syria's multiple civil wars by the Assad regime, Iran and its proxy Hezbollah as well as the Islamic State.
A byproduct of the depredation of the national security state and resurgent Islamism has been the slow death of the cosmopolitanism that distinguished great Middle Eastern cities like Alexandria, Beirut, Cairo and Damascus. Alexandria was once a center of learning and multicultural delights (by night, Mark Twain wrote in Innocents Abroad, "it was a sort of reminiscence of Paris"). Today Alexandria is a hotbed of political Islam, now that the once large Greek-Egyptian community has fled along with the other non-Arab and non-Muslim communities. Beirut, once the most liberal city in the Levant, is struggling to maintain a modicum of openness and tolerance while being pushed by Hezbollah to become a Tehran on the Med. Over the last few decades, Islamists across the region have encouraged—and pressured—women to wear veils, men to show signs of religiosity, and subtly and not-so-subtly intimidated non-conformist intellectuals and artists. Egypt today is bereft of good universities and research centers, while publishing unreadable newspapers peddling xenophobia and hyper-nationalism. Cairo no longer produces the kind of daring and creative cinema that pioneers like the critically acclaimed director Youssef Chahine made for more than 60 years. Egyptian society today cannot tolerate a literary and intellectual figure like Taha Hussein, who towered over Arab intellectual life from the 1920s until his death in 1973, because of his skepticism about Islam. Egyptian society cannot reconcile itself today to the great diva Asmahan (1917-1944) singing to her lover that "my soul, my heart, and my body are in your hand." In the Egypt of today, a chanteuse like Asmahan would be hounded and banished from the country.
The jihadists of the Islamic State, in other words, did not emerge from nowhere. They climbed out of a rotting, empty hulk—what was left of a broken-down civilization. They are a gruesome manifestation of a deeper malady afflicting Arab political culture, which was stagnant, repressive and patriarchal after the decades of authoritarian rule that led to the disastrous defeat in the 1967 war with Israel. That defeat sounded the death knell of Arab nationalism and the resurgence of political Islam, which projected itself as the alternative to the more secular ideologies that had dominated the Arab republics since the Second World War. If Arab decline was the problem, then "Islam is the solution," the Islamists said—and they believed it.
At their core, both political currents—Arab nationalism and Islamism—are driven by atavistic impulses and a regressive outlook on life that is grounded in a mostly mythologized past. Many Islamists, including Egypt's Muslim Brotherhood (the wellspring of such groups)—whether they say it explicitly or hint at it—are still on a ceaseless quest to resurrect the old Ottoman Caliphate. Still more radical types—the Salafists—yearn for a return to the puritanical days of Prophet Muhammad and his companions. For most Islamists, democracy means only majoritarian rule, and the rule of sharia law, which codifies gender inequality and discrimination against non-Muslims.
And let's face the grim truth: There is no evidence whatever that Islam in its various political forms is compatible with modern democracy. From Afghanistan under the Taliban to Pakistan and Saudi Arabia, and from Iran to Sudan, there is no Islamist entity that can be said to be democratic, just or a practitioner of good governance. The short rule of the Muslim Brotherhood in Egypt under the presidency of Mohamed Morsi was no exception. The Brotherhood tried to monopolize power, hound and intimidate the opposition and was driving the country toward a dangerous impasse before a violent military coup ended the brief experimentation with Islamist rule.
Like the Islamists, the Arab nationalists—particularly the Baathists—were also fixated on a "renaissance" of past Arab greatness, which had once flourished in the famed cities of Damascus, Baghdad, Cairo and Córdoba in Al-Andalus, now Spain. These nationalists believed that Arab language and culture (and to a lesser extent Islam) were enough to unite disparate entities with different levels of social, political and cultural development. They were in denial that they lived in a far more diverse world. Those minorities that resisted the primacy of Arab identity were discriminated against, denied citizenship and basic rights, and in the case of the Kurds in Iraq were subjected to massive repression and killings of genocidal proportion. Under the guise of Arab nationalism the modern Arab despot (Saddam, Qaddafi, the Assads) emerged. But these men lived in splendid solitude, detached from their own people. The repression and intimidation of the societies they ruled over were painfully summarized by the gifted Syrian poet Muhammad al-Maghout: "I enter the bathroom with my identity papers in my hand."
The dictators, always unpopular, opened the door to the Islamists' rise when they proved just as incompetent as the monarchs they had replaced. That, again, came in 1967 after the crushing defeat of Nasserite Egypt and Baathist Syria at the hands of Israel. From that moment on Arab politics began to be animated by various Islamist parties and movements. The dictators, in their desperation to hold onto their waning power, only became more brutal in the 1980s and '90s. But the Islamists kept coming back in new and various shapes and stripes, only to be crushed again ever more ferociously.
The year 1979 was a watershed moment for political Islam. An Islamic revolution exploded in Iran, provoked in part by decades of Western support for the corrupt shah. The Soviet Union invaded Afghanistan and a group of bloody zealots occupied the Grand Mosque in Mecca for two weeks. After these cataclysmic events political Islam became more atavistic in its Sunni manifestations and more belligerent in its Shia manifestations. Saudi Arabia, in order to reassert its fundamentalist "wahhabi" ethos, became stricter in its application of Islamic law, and increased its financial aid to ultraconservative Islamists and their schools throughout the world. The Islamization of the war in Afghanistan against Soviet occupation—a project organized and financed by the United States, Saudi Arabia, Egypt and Pakistan—triggered a tectonic change in the political map of South Asia and the Middle East. The Afghan war was the baptism of fire for terrorist outfits like the Egyptian Islamic Group and al Qaeda, the progenitors of the Islamic State.
This decades-long struggle for legitimacy between the dictators and the Islamists meant that when the Arab Spring uprisings began in early 2011, there were no other political alternatives. You had only the Scylla of the national security state and the Charybdis of political Islam. The secularists and liberals, while playing the leading role in the early phase of the Egyptian uprisings, were marginalized later by the Islamists who, because of their political experience as an old movement, won parliamentary and presidential elections. In a region shorn of real political life it was difficult for the admittedly divided and not very experienced liberals and secularists to form viable political parties.
So no one should be surprised that the Islamists and the remnants of the national security state have dominated Egypt since the fall of Hosni Mubarak. In the end, the uprising removed the tip of the political pyramid—Mubarak and some of his cronies—but the rest of the repressive structure, what the Egyptians refer to as the "deep state" (the army, security apparatus, the judiciary, state media and vested economic interests), remained intact. After the failed experiment of Muslim Brotherhood rule, a bloody coup in 2013 completed the circle and brought Egypt back under the control of a retired general.
In today's Iraq, too, the failure of a would-be authoritarian—recently departed Prime Minister Nuri al-Maliki—has contributed to the rise of the Islamists. The Islamic State is exploiting the alienated Arab Sunni minority, which feels marginalized and disenfranchised in an Iraq dominated by the Shia for the first time in its history and significantly influenced by Iran.
Almost every Muslim era, including the enlightened ones, has been challenged by groups that espouse a virulent brand of austere, puritanical and absolutist Islam. They have different names, but are driven by the same fanatical, atavistic impulses. The great city of Córdoba, one of the most advanced cities in Medieval Europe, was sacked and plundered by such a group (Al Mourabitoun) in 1013, destroying its magnificent palaces and its famed library. In the 1920s the Ikhwan Movement in Arabia (no relation to the Egyptian movement) was so fanatical that the founder of Saudi Arabia, King Abdul-Aziz Al Saud, who collaborated with them initially, had to crush them later on. In contemporary times, these groups include the Taliban, al Qaeda and the Islamic State.
Yes, it is misleading to lump—as some do—all Islamist groups together, even though all are conservative in varying degrees. As terrorist organizations, al Qaeda and Islamic State are different from the Muslim Brotherhood, a conservative movement that renounced violence years ago, although it did dabble with violence in the past.
Nonetheless, most of these groups do belong to the same family tree—and all of them stem from the Arabs' civilizational ills. The Islamic State, like al Qaeda, is the tumorous creation of an ailing Arab body politic. Its roots run deep in the badlands of a tormented Arab world that seems to be slouching aimlessly through the darkness. It took the Arabs decades and generations to reach this nadir. It will take us a long time to recover—it certainly won't happen in my lifetime. My generation of Arabs was told by both the Arab nationalists and the Islamists that we should man the proverbial ramparts to defend the "Arab World" against the numerous barbarians (imperialists, Zionists, Soviets) massing at the gates. Little did we know that the barbarians were already inside the gates, that they spoke our language and were already very well entrenched in the city.
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